Ladder Capital Corp

Thank you for standing by. This is the conference operator. Welcome to the Ladder Capital Corp third quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Michelle Wallach, Chief Compliance Officer and Senior Regulatory Counsel. Please go ahead.

Thank you, and good afternoon, everyone. We continue to wish that all of you listening and your families are well and remain safe. Turning to our earnings call for the third quarter 2020, with me this afternoon are Brian Harris, our company's chief executive officer, Pamela McCormick, our president, and Mark Fox, our chief financial officer. Brian, Pamela, and Mark will share their comments about the third quarter, what they are currently seeing in the fourth quarter, and we will then open up the call to questions. This afternoon, we released our financial results for the three and nine months entered September 30th, 2020. The earnings release is available in the Investors Relations section of the company's website, and our quarterly report on Form 10-Q will be filed with the SEC later this week. Before the call begins, I'd like to remind everyone that this call may include forward-looking statements. Actual results may differ materially from those expressed or implied on this call, and we do not undertake any duty to update these statements. I refer you to our most recent Form 10-K and Form 10-Q for a description of some of the risks that may affect our results. We'll also refer to certain non-GAAP measures on this call. Additional information including a reconciliation of these non-GAAP measures to the most comparable GAAP measures, is available on our website, ir.lattercapital.com, and in our earnings release. With that, I'll turn the call over to our president, Pamela McCormick.

Thank you, Michelle, and good afternoon, everyone. For the third quarter, LATF produced core earnings of $19.7 million, or 16 cents per share. Our undepreciated book value per share increased by 18 cents from the prior quarter to $14.35 per share. We continued to increase liquidity and reduce leverage and ended the quarter with unrestricted cash balance of $876 million and an adjusted debt-to-equity ratio net of cash of 2.34 times. As of today, our unrestricted cash balance stands at over $940 million. Our liquidity position continues to be among the best in our sector. We have focused on building liquidity and book value while we wait for the results of next week's election, further clarity on another stimulus package, and a more expansive reopening of the economy. With clarity on these issues nearing closer, our large cash position and modest leverage leaves us both well positioned and well capitalized to begin to take advantage of the investment opportunities we expect to arise as a consequence of this crisis. In the meantime, I'm pleased to report that we have an average collection rate of 98% for interest and rents across our loan and real estate portfolios in the quarter. In addition, no specific loan loss provisions were required. Our overall rate includes 100% collections from our substantial portfolio of net lease properties, which has performed particularly well during the crisis. October collections have been similarly strong across all of our business lines. The credit quality and liquidity of our balance sheet loan portfolio was further evidenced as the portfolio paid down by more than 21% or $739 million from loan payoffs and sales over the second and third quarters. During the third quarter, loan repayments totaled $223 million, including two hotel loans, and we sold a $7 million note at par value. Consequently, as of quarter end, Our $2.7 billion balance sheet loan portfolio represented just 42% of our total assets. Since then, we received over $80 million in additional loan repayments as more loans paid off in October. During the third quarter, we also sold three properties for total proceeds of $64 million, which generated $12 million of core earnings. Strong collections, repayments, and equity sales above book value demonstrate the continued strength of our inherently conservative credit culture. Our middle market focus results in a highly diverse and granular asset base. We maintain relatively small investment sizes across all of our business lines and an average loan size of less than $20 million spread across various sponsors, property types, and geographic locations. With small loan balances, we have seen our middle market borrowers access a larger and more diversified pool of capital providers to refinance their assets, including regional banks and credit unions, debt funds, and governmental agencies. As loans paid off, our total future funding obligations were reduced to just $227 million as of September 30th, the majority of which remain conditional upon the achievement of good news events such as leasing and tenant improvements that would be accretive to the asset. With regard to our security segment, our portfolio has been reduced by more than 25% or $483 million over the second and third quarters through a combination of amortization and sales. As a result, $367 million, or 31% of securities repo debt, has been paid down during the same time, limiting our outstanding securities repo to $823 million. As we continue to strengthen the right side of our balance sheet by reducing our total debt and mark-to-market financing, we are pleased to report that as of today, we only have $288 million of loan repo debt outstanding. 76% of Ladder's capital base is now comprised of unsecured bonds, non-recourse and non-mark-to-market debt, and book equity. And over $2.7 billion, or 43% of our assets are unencumbered, including our unrestricted cash, and $1.2 billion of first mortgage loans. In conclusion, with a strong balance sheet and vast incremental earnings power on hand, we're looking forward to finally taking advantage of the substantial investment opportunities we expect to emerge. Our multi-cylinder business model will allow us to pivot quickly as opportunities present for loans, leases, and or rescue capital on compelling projects with strong sponsors, and we have the necessary liquidity and in-house experience to immediately capitalize on these opportunities. With that, I'll now turn the call over to Mark.

Thank you, Pamela. The liquidity and capital strengthening actions taken over the last few months allowed Ladder to focus on managing its portfolio of investments and working to reduce its cost of funds. In that regard, Ladder continued to delever its balance sheet. By September 30, our adjusted leverage ratio was reduced to 2.91 times. Net of unrestricted cash, latter's adjusted leverage ratio was 2.34 times. During the course of the third quarter, total debt was reduced by $239 million, including a $91 million reduction of financing against our securities portfolio. In paying down debt, we continued to intentionally target secured borrowings that was subject to mark-to-market provisions. For the three months end of September 30, we paid down an additional $27 million of loan repo debt, resulting in a balance at quarter end of $354 million. Ladder also repurchased $36 million of our corporate bonds in Q3, bringing repurchases over the past two quarters to $175 million. In addition, we bought back 124,000 shares of Class A common stock at an average price of $7.21 per share during the quarter. We saw this as an attractive opportunity to acquire our stock at a substantial discount to undepreciated book value or almost any other measure of the net asset value of our company. These transactions were funded with cash inflows from a combination of sources. Balance sheet loan repayments and sales during the quarter totaled $236 million. $60 million of conduit loans were securitized. Sales and amortization of securities yielded an additional $76 million. And sales of real estate generated $64 million of cash, including $12 million of core gains. In terms of assets, our loan portfolio totaled $2.7 billion at September 30, of which 96% were first mortgages with a weighted average loan-to-value ratio of 67% and a weighted average remaining duration of 1.1 years. Our balance sheet loans are predominantly secured by lightly transitional assets, and we have historically avoided construction loans. As a result, our future funding obligations are limited at approximately 8% of our outstanding principal balances. The diversity and granularity of our investments that Pamela referenced can be seen in our real estate equity portfolio. which totaled $1.2 billion of undepreciated book value and comprises approximately 7.7 million square feet in 176 properties across the United States. Of this, approximately 163 properties are net leased to single tenants with a weighted average remaining lease term of 12 years. Our $1.4 billion securities portfolio is nearly 100% investment grade, 92% AAA rated. with a weighted average duration of 2.1 years as of September 30th. Financing, pricing, and liquidity for these high-quality, short-duration assets have improved over the course of the quarter. We are reporting $19.7 million of quarterly core earnings and core EPS of 16 cents. The major sources of 3Q income were interest and rental income in addition to the gains on real estate investments. We did not record any specific loan loss provisions in the third quarter. With regard to CECL, the dollar amount of that general reserve decreased by $2.5 million to $27 million, the decrease related to the balance sheet loan payoffs received during the quarter. With regard to shareholders' equity, our securities portfolio valuation marks continued to steadily increase during the quarter, resulting in an $18.7 million credit to shareholders' equity from a 121 basis point improvement in marks as liquidity continued to return to the investment grade-rated CRE-CLO and CMBS markets. We also paid a dividend of 20 cents a share in Q3. Gap book value at September 30 increased to $12.61 per share from $12.44, at the end of the prior quarter while undepreciated book value per share rose to 1435. Finally, Ladder successfully streamlined its capital structure as the last of our original partners exchanged their Class B units for shares of Ladder's publicly traded Class A common stock. Ladder now has a single class of equity ownership interest outstanding. This simplification provides Ladder with the option of aligning the timing of Ladder's future dividend dates with those of our public company peers, and will also allow us to realize annual administrative cost savings. Looking forward, we're confident in our strengthened capital base and solid liquidity position. Our loan and securities portfolio have decreased in size due to strong levels of natural amortization and healthy levels of payoffs. We continue to deliver our already diverse liability structure while maintaining significant liquidity to remain ready for opportunities as they may present themselves. More details of our Q3 operating results can be found in our quarterly earnings supplement, which is available on our website now, as well as our third quarter 2020 10Q, which we expect to file this evening. I'll now turn the call over to our Chief Executive Officer, Brian Harris. Thank you, Mark.

In the third quarter, we continued to strengthen our balance sheet and raise our liquidity profile. We began this somewhat defensive stance back in March when the virus took hold in the U.S. and caused elevated volatility in the capital markets. Since our next call won't be until late February, I wanted to expand on what Pamela and Mark detailed into what we're seeing so far in October. With additional loans that paid off in October, our restricted cash has risen to over $940 million as of today. We are exceptionally liquid and have one of the best liquidity profiles in the sector. As the investment landscape becomes more clear, we're happy to be sitting with such a large cash position after the progress we've made in deleveraging the company. While our cash holdings are dampening earnings in the short term, we are extremely well positioned to take advantage of longer-term opportunities in lending on and owning real estate as our economy recovers and a medical solution to the current health problem emerges, hopefully, in the next three to six months. Despite the challenges facing commercial real estate, we continue to see our loan portfolio refinance at what appears to be a fairly normal rate. While apartments and industrial assets are the easiest property types to refinance or sell, we are impressed to see some retail, office, and even hotel loans also taking advantage of today's low interest rates and refinancing. We are also happy to have realized significant value through the sales of our real estate portfolio this quarter that resulted in meaningful gains. We continue to see this segment of our business as a stable source of recurring earnings, with occasional but substantial contributions from gain on sale. We said on our last call that we felt it was prudent to wait and see how school openings went and how under control the virus was, and lastly, how the election turns out. Schools seem to be adjusting to the new norm, but the virus is clearly not under control, so the importance of finding a medical solution seems more critical than ever before. The results of U.S. elections will give us better clarity and more confidence as to how we invest going forward, and we expect our patience to be rewarded. As we look ahead to the end of 2020 and into next year, we expect to selectively start making new loans and purchasing new assets in what we expect to be a post-COVID environment characterized by low interest rates that will rise over time with inflation at higher levels than we've seen over the last five years. Even though there seems to be a lot of capital available in the lending space, we believe that lending standards at banks will be very restrictive, and that should result in less competition and provide attractive opportunities for non-bank lenders. Our consistent use of unsecured corporate debt should put us in a strong competitive position as the recovery unfolds. Next year, we have just $250 million of five and seven eighths rate corporate bonds due in August 2021. They are callable now at PAR. We expect to refinance this issue in the first half of 2021 and are cautiously optimistic that our economy will be moving in the right direction as we hopefully move toward the end of this pandemic. We'll now turn to Q&A.

Thank you. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then two. Our first question is from Mike Slice with B Reilly Securities. Please go ahead.

Hey, everyone. Thanks for taking the questions. So my first question is kind of given where the stock is trading on book value, I guess just high level, what do you kind of think the market is sort of missing here, and how do you think about bridging that gap? Is this a few quarters of stable book value performance or looking to put capital to work and grow the dividend? Any color here you can provide would be helpful.

Sure, and thank you for asking. This is Brian. I think that there's a couple of things that happened. First of all, obviously the whole sector got checked pretty hard when the original COVID shock took place in the middle of March. We got caught up in a discussion about securities and leverage at that point that, frankly, we never should have been in. I don't know why the market had that discussion about us. In any event, I think that we were taken down a little harder than a lot of our competitors in the set. So when you're trading at a deep discount to book value like we are at this point, we decided that we would put a backseat to earnings and we would worry more about liquidity because that seemed to be what one of the concerns was. And frankly, with a pandemic going on, that's a playbook we haven't really figured out in our careers in the past. So it helped to, you know, with interest rates falling precipitously, it didn't make any sense to go out and do a whole lot of lending at very low rates anyway. So I think, you know, it's a several-step process. The first was to stabilize our bond portfolio. And I mean the corporate bond portfolio, the bonds that we have outstanding which fell in some cases down to 60 cents on a dollar back in March or April. Those we acquired $175 million worth of those. I would point out that's not something somebody would do if they were having a liquidity problem because those bonds are not due for quite a while. And they also represented tremendous value, especially versus anything else we could have been investing in. We feel like we've stabilized the price of those bonds, although we still trail some of our competitors, and we're a little surprised by that, but that probably just requires more attention and marketing from us. We'll continue to buy those bonds if they do show any form of weakening in price, because the first offering that comes due comes due in, I think it's September of 2021. So we have to buy them anyway, and it's got a pretty high rate. So we'll probably look to retire those, as I said, either in the first half or else we'll systematically just purchase them in the open market. I think as far as the second step goes, we're at that point. At some point when your concern might be about credit as an investor, as you see 25% of a portfolio pay off at par on time, and you see levels of cash rising, approaching 125% of the market cap of the company, you could always wonder, are they over leveraged? I think if you look at our leverage as a company, we're under leveraged actually. We've got an enormous amount of cash, we can pay off most of our debts, and we've had a very active usage of unsecured corporate debt, which I think was very, it was very fortuitous and showed a lot of foresight into a situation like this because those bonds are not due. And the last one we did was in January of 2020. And those bonds are not due until 2027. So I think the first step was the bonds. The second step is liquidity. And you did see us start to buy some of our stock back in the last quarter. And I think the third step will be earnings. And I think earnings is something that is a relatively easy thing to turn on. You have to be a little bit careful because of the credit environment we're in, which is uncertain. That doesn't mean bad. It just means uncertain. And I think that we'll begin to start making loans probably after this election. We've already sent some loan quotes out, and we would close some loans. But everybody thought Europe was a great idea in a textbook case of how to handle a pandemic about three months ago, and Maybe that was too soon. So I think our patience has been rewarded. I'm not overly worried about earnings right now. Obviously you have to worry about earnings eventually, but I think we've taken all the right steps and now approaching almost a billion dollars in cash, clearly we can get involved in a lot of situations, including our own stock, buying our bonds back or retiring them, or making loans into any form of distress or regular way financings. I think we also have to be very careful of how our banks feel about financing those loans. We have really lowered our repo debt, as Pamela detailed. I think our loan repo debt is in the low 200 millions. And I think if we ever needed to call upon additional cash reserves, we could actually sell the securities portfolio. And I think that portfolio, if we took away the debt associated with the securities portfolio, I think we're levered, if you remove that and cash, we're like 1.3 times. So it is not a leverage conversation. And so I think that the market has thought it was a leverage conversation. That's why it's a deep discounted book value. And if the market continues to think of it as a leverage conversation, then we will step in and take advantage of that opportunity as opposed to observing it. And I think the earnings should come. I don't think that's going to be difficult. We certainly know how to lend money. We know how to invest in real estate. We know how to buy and sell securities or get into distress. But right now, I think anything we would feel comfortable lending on, given the environment we're in, is a 4% to 4.5% rate into an environment where inflation is likely to tick higher. And the reason the overall rate is so low is because interest rates are low for precisely the wrong reasons. you wouldn't want to be lending a lot of money into that environment given the uncertainty because the Fed is trying to quell fears right now with rates being so low. So that's a long-winded example, but it's a three-step process. As I said, it's bonds first, now it's book value, then it's earnings. So hopefully that answered it.

No, thanks a lot, Brian. That's a lot of really good color. So moving over to credit, you mentioned 98% of collections. So I'm just wondering how did that look on the hotel and retail loans? And, you know, any other color you can or trends you can provide on these property types would be appreciated. I'll punt that to Pamela if that's okay.

Yeah, I may ask Rob for help on the breakdown of the hotel specifically, but our 98% collection rate was across the portfolio, including loans and also the real estate portfolio, with 100% collection on our triple net leases. Rob, do you have the specific breakdown on the hotels? It's really, I think, just one hotel.

It was in excess of 95% payment by cash flow or equity contributions, and then one hotel was delinquent.

Gotcha. And could you provide a little bit, any color on the delinquent hotel?

It was a Miami hotel that is a $45 million position, and we're in the process of foreclosure, and we're also listing it for sale.

Gotcha. That is helpful commentary. Thank you so much for taking my questions. Sure.

The next question is from Steve Delaney with J&T Securities. Please go ahead. Sorry, one moment. Please go ahead.

Hi. Good evening, everyone. And I applaud your discipline and patience. I don't think that I could match that given what you've been through. But great job to be sitting where you are with the opportunities. To that end, and I understand, Brian, your comments about rates. I think it's been a lot of We've seen the 10-year back up pretty well over the last month. But it seems to me when you look at the opportunities out there to start deploying the capital, it would seem that CMBS conduit lending at this point in time, what I expect will be a pretty good wave of interest in refinancing into fixed-rate paper, might be a great place for you to go. I learned a long time ago from Mark not to trust CMA, but it sounds like margins in the third quarter were very attractive. And if you could just share your thoughts about where you would rank conduit lending on the list of things that over the next couple of months you guys might look to step up. Thank you.

Sure. If I look across our product matrix of even securities, bridge loans, conduit, and cash now is an investment, I guess. And real estate, to tell you the truth, I think I like real estate best right now because I don't particularly care to be lending at these low rates, but it might be a fine idea to be borrowing at these low rates. Especially with inflation around the corner, as you know, we have a real estate portfolio. And as we begin to look at refinancing that portfolio, that's now heading to the part of its life where the mortgages are actually maturing. we should be refinancing into lower rate transactions there. So that'll be a position of earnings too. But as far as the conduit goes, conduit is a little bit tricky. Yes, it is a very high ROE business. It's one that we're very comfortable in. My concerns right now regarding that are not really around the arbitrage associated with making a loan and selling it. It is the aggregation process of getting a bunch of people together who also have loans. And the aggregation process can take quite a bit longer. And in addition to that, then you may wind up with a very prickly B-piece buyer. We're in a unique position because if we ever wanted to, we could buy those B-pieces. And we could do our own securitization and just hang on to our own B-piece. But I would say right now, given the margins for a 4% or 4.5% loan are quite high. However, the aggregation period is also quite high. And most of the banks are making loans in the 50% to 55% LTV area with a three-handle on rates. And I'm a little bit concerned when I think about inflation and the Fed's stated objective. I'm not guessing at this. They said it. I am a little concerned that you could get caught holding something where long-end needs to widen out because of the inflation side of it. The conduit business is not dangerous, though, because you tend to only hold a portion of one transaction if it does widen out. So we like that. And so I suspect we will be, I think I said in our last call that we would probably begin with conduit lending. I think we will. It's a relatively easy thing to finance. It's not easy to find a lot of loans that you would write for 10 years. The inventory of addressable assets is a little thin right now because you know, the jury's out right now on a lot of retailers. And, you know, the office sector, again, if you pay too much attention to New York City, you could get a little bit nervous, but the office sector should be okay, I think. And obviously apartments, the government with their backstop has really, you know, caused a flattening of yields there. And so it's a little bit of a thin pickings as well as, you know, aggregation process is a little challenging, but I suspect You know, we've always approached it from the standpoint of we don't have to sell this in six months. We can hold it for a year. So I think we'll start just like we started in 2008. You know, we'll start doing some conduit loans. And when we find the right partner and the right VP spire, then we'll enter the market. But there's no urgency around that right now. But it is always the highest ROE product we know.

The only thing I would add to that, Brian, I was just going to add one thing. I think it's a great illustration of when we do participate in the securitization market, We only make loans we'd be willing to hold ourselves. We don't do it to distribute. We just take advantage of the distribution ability. And as Brian said earlier, while we have the ability and the cash to write the loans, I think you're going to see, we're all going to see, vintage matters. And when we feel the timing is right and therefore the risk-adjusted rewards, we're just looking at what's getting done right now and the pricing doesn't seem to justify not waiting to see what happens with some of the volatility that looks likely to be clarified over the next few weeks, if not months.

Sure. Makes sense. Well, I know there are a lot of people in the queue, so I'll leave it there. Thank you for your comments.

Thank you. Thanks. The next question is from Charlie Arestia with JP Morgan. Please go ahead.

Hey, good evening, everybody. Thanks for taking the questions. Apologies if I'm missing the prepared remarks, but I was wondering if you could provide some color on those three real estate assets that were sold during the quarter and ultimately what drove the decision to sell them?

Sure. The three assets, one was a warehouse that had an enormous amount of improvements in the Atlanta area. We had purchased it a couple of years ago from Keurig, the coffee cup maker, and I guess they decided to stop doing cold beverages, but they put a whole lot of stainless steel into a building and then decided they didn't need it, we purchased it with a partner. And we felt that that amount of equipment would probably be useful if we found the right buyer. And two years later, admittedly, six months of a pandemic slowed some things down. But we sold it to a user. We bought it for $25 million. We sold it for $41 million. And our take there was, aside from the lending side and some other parts, but it was almost $10 million. So that was the lion's share of the game. The other two are interesting. We had a 1031 party approach us and said they needed to buy something in the triple net space. So we showed them a list of many assets that we own. And they picked one that they knew pretty well. It was a New York asset. It was BJ's Wholesale Club. And so that sold and they assumed the mortgage debt. And I think we had owned that for about five years. And they just assumed that debt. And the last one was an interesting one in that it was a hotel, that it was a limited service hotel that we had foreclosed on and put up for sale. And versus our level of ownership, it was actually a positive moneymaker. I've long said I don't understand why people don't put properties up for sale before they go into default. but they still don't, and so we wound up foreclosing on that. We also foreclosed on another hotel from the same borrower, and that hotel is also under contract now, and it hasn't closed yet, but if it does close, then we'll let you know about that one next quarter. Does that answer any further details you needed?

Very much so. Thanks, Brian. And if I could just get one more question, I apologize. You guys mentioned, I think it was last quarter, that there are some new funds, private debt funds that have been stood up to, you know, take advantage of some of the more distressed opportunities, probably in some of the more beaten down markets and property types. Has that pace kept up this quarter, and is that really changing the competitive environment for loans or not really an area that you guys are focused in?

I mean, it's an area we're focused in. It's a little hard to say because, for one thing, we're all sitting in different buildings and cities, but – I think that there has been a lot of money raised, and I think there was anticipation that there was going to be a tremendous amount of asset transfers taking place. I just don't agree that there's going to be that many assets transferring with LIBOR at 14 basis points and banks with unbelievable amounts of capital in their balance sheets. I think there's about $17 trillion now inside of banks. But, you know, it might. I think that if I had to just throw some Kentucky windage at it, I think they've raised too much money given what the opportunity is. Now, the opportunity could grow quite a bit more. We'll see. But, you know, with the Fed getting involved and, you know, the possibility of fiscal stimulus, you know, I think it could be a lot of money sitting around for quite a while. So I do think that many things that will take place, though, will take place because someone is under stress. It doesn't have to be a bank. It doesn't have to be a borrower. It could be a financing line going against the lender and could become problematic. So I do think it's a picker's market. I don't think you can say categorically this is a sector I'm going to dump money into. I think the low hanging fruit for the securities business where March shook out a lot of triple B and single A paper at astonishing low prices, those have all recovered. I do think there's some hotel paper that you could still buy. I think most people think the Four Seasons in Maui will actually open one day. And I think that the Boca Resort will probably open the Diplomat Hotel. So there's some of these single asset deals that are floating around, but they're not trading at $0.70 on a dollar. They're trading at $0.92 or $0.93 on a dollar. So that's really the extent of that. Retail, you have to be very careful. There's an entire swath of real estate in retail that, frankly, is uninvestable because it's not needed anymore. So I don't think you just dive in there. I think you have to be very careful around what things are, what the demographics and traffic counts look like. I don't think retail is dead, but we had too much retail when Kmart went bankrupt. We certainly have too much retail now.

Thanks very much.

Sure. Once again, if you'd like to join the question queue, please press star then 1. Our next question is from Jade Ramani with KBW. Please go ahead.

Hi there. Thanks for taking the questions. And nice to hear from all of you. I had to dial in late, so just wanted to ask, given where the stock is trading, how attractive is buying back stock at this point, considering I think the company's got the largest liquidity position in the commercial mortgage space, coupled with its cumbered asset base, coupled with its very high mix of non-market-to-market financing and the unsecured debt that was issued earlier this year. So at 51%, 52%, how are you looking at potential share repurchases?

I'll inject a little humor here. I would tell you that some of our competitors have called us a SPAC. because another one informed me that he thought we had more cash than Boeing on hand. But the reality is there's no reason not to right now. We're not forcing things to pay off. I mean, the loans are just paying off because they're two years old, and this is the amount of payoffs we tend to get every quarter. We're a little surprised. We saw three hotels refinance in the last quarter, so that was a bit of a surprise. But as far as our stock goes, you saw us purchase, and I answered a question earlier about what are the three stages of recovery. When your stock gets cut in half like that, it's a humbling moment, but it's also an opportunity to try to take care of things that you can control in your four walls without inviting a borrower or a bank into the picture. So I think the stock is ridiculously cheap, and we We own quite a bit of it internally, so we know all about the shareholder experience. We thought it was important that because there was a market perception that we felt was unfounded, but it was still there, that there was a liquidity conversation going on with our name in the middle of it. So we addressed that first, and we picked up $175 million of our corporate bonds. We will pick up a lot more of them if they're available at prices that we feel are too low, especially relative to other things we can do. We began to buy our stock back. We did not want to start buying our stock back at a time when our bonds were trading at very low rates because we felt like that would be a little tone deaf to the bondholders of the world. And so we've largely repaired that situation, even though I still think they're trading, the bonds are trading behind some competitors that I don't think we should be behind. But and now the stock does look extraordinarily cheap, I would say. So I don't know where the stock will be tomorrow or today. It moved up a little bit, I think, as the whole sector did. But it is a very attractive purchase right now. And I think we have about $38 million left in our authorization at this point. So, you know, we will make use of that if the stock continues to sit in the 55% of book value area.

Okay. And just to put a finer point on it, you look at, you know, Starwood Property Trust, I believe that they're going to report a cash number somewhere in the $700 to $800 million range. You look at BXMT just reported, you know, they're in the, if I recall correctly, somewhere in the $400 to $500 million range. And, you know, both those companies have a much higher market cap than Ladder. So, Is there something negative either in the portfolio or in the outlook that you are seeing? Perhaps it's your experience through multiple cycles or something else that investors need to be cognizant of as to why the company should hold that much cash.

Well, the company does not intend to continue holding that much cash. As I said, we have always set up the company with a liberal use of unsecured corporate debt. So that was something we planned on six years ago, and we kept doing it, and we were very well rewarded for that in January when we borrowed $750 million unsecured. That fact escaped investors in March when people were concerned about a margin call of about $100 million, which was nothing. I don't want to sound like the president saying it's a peanut compared to our position, but It was a big margin call, but it was something we certainly had. And two-year AAA bonds just don't move around that much. So I think that probably the frustration on my end and probably the stubbornness on my end is I am fairly convinced Ladder clearly looks different than a lot of other competitors, right? One is we have an extraordinary amount of cash. Two, we use way more corporate debt than anybody else. Three, we have less repo debt than anybody else. We have way more securities than anyone else. We have much more triple net real estate than any of the mortgage REITs, not the triple net REITs, but those. So we have clearly pulled away and differentiated on purpose. We always assumed having seen up and down many difficult markets, you need to be able to turn cash off leaving the building. So we've always avoided construction loans, We have very little in the way of future advances. As I think somebody said, it was 8% of our outstanding loan balance. I think it's 200 odd million dollars, and we clearly have enough to handle that right now. So we don't have any threats coming from the debt side, but we have made it our business to look different than others. And when people say, well, maybe you own too many securities, I think that's a long-winded way of telling you. I think the market thinks we have too many securities. I'll go along with that. In a fairly short order, we could liquidate that securities portfolio and deliver another $350 million in cash to the bottom line. At that point, that would just be making a point, I think. And keep in mind with now, I know that when we looked at those numbers that we recited at Even since then, our cash position is higher from yesterday. So we're running into too much cash right now, so we're going to have to do something with it. We don't see great opportunities to deploy that in debt. Rates are too low, and they're low for the wrong reasons. And there's too much risk to be putting a billion dollars into the street at 4%. If it's a securitized instrument, that's fine. But our securities portfolio can easily be liquidated. It is not a threatening instrument. It has been paying off. It is massively senior to everything else around it. And had we not owned those securities, we probably would have owned another billion dollars worth of bridge loans. And I just can't swallow an investor telling me, I wish you had another billion dollars of bridge loans in a pandemic than AAA bonds. It is the safer, better, more liquid, and most likely to pay off at par instrument. And it will be a source of liquidity whenever we need it. At this point, we don't. We proved when the market was concerned in March and April, we sold 400 million of various QSIPs in one of our earnings calls. I identified our largest position. And the facts don't really match the discussion sometimes that takes place. So I think what the market is telling us is they don't like our securities position. And while I think that statement is wrong, I'm going to go along with it anyway, because we don't make enough in the securities business not to. If it's bothering people and they want us to look more like our competitors, and that two-year AAA portfolio scares them, All right, we'll lighten up on that. We don't need to own that many of those. And we probably, if you want to go down the road a year, year and a half from now, I wouldn't be at all surprised if we don't own any securities. The only thing that I would point out is, given what was discussed in March and April, we will wind up exiting that securities portfolio without losses. When you panic, you lose. And there was no reason to panic. The market was telling us to panic, and we held firm. And that's 37 years of experience in these markets talking. So... We're pretty comfortable where we are. The market does not always understand us because we look a little different from other people. So maybe we're just a little bit too complicated. But we're going to simplify things a little bit. And instead of dealing with our stock price and bond price as a problem, we're now going to be dealing with it as an opportunity.

I just want to jump in and say one thing. Go ahead. I've been with Brian, I'm turning 50, I think since I was 30. And so I'm a little bit of a disciple in that regard. But what I'll say is I remember when we opened the doors in 2008 with the private equity guys and they were begging us to make loans, make loans, make loans. And we were sitting on a lot of cash. We had raised over $611 million back without a placement agent in 2008. And Brian was very patient, had us set up. to become a house borrower. We're buying securities and they said they don't pay people to invest in securities and exercise enormous patience because at that time, really, I think we did our first securitization with JP Morgan in 2010, just to show you the timeline. And we were very patient about making loans until we felt like the market was right. We're not incapable. We're not afraid. We are intentionally and purposely waiting for what we think is a better risk adjusted return. We're waiting to pounce. We've been ready. And I think that while Brian is, and it hurts me to hear him capitulate on the securities because we do, we're not ignorant to what the market thinks of it. But I will go out long on this public call and say, I think investors will be looking for us to do that again at the end of this. When you get to the other side of this in a couple of years from now and you see the limited losses due to the AAA nature of that portfolio, I think it was a really smart decision.

Yeah, I've always thought that the, you know, pairing the securities business with the CMBS conduit business with the bridge lending business made a lot of sense, provided the management team, you know, has the skill set to, you know, to trade those three sectors and then find opportunistic opportunities in the equity. So I've always been a fan of Ladder's business model. The issue now is, you know, I've, I started my job in 2007, and the first mortgage read I looked at was NRF, and they were one of the only ones to start buying back their stock and buying back their debt at cents on the dollar, and it created an upward trajectory of book value that allowed the company to eventually reinstate the dividend, grow dividends, get investors' confidence back, and they rallied tremendously so looking at the stock at 740 you know it would take a very for the company to get back to above book value to be able to accretively issue equity and grow and when stocks are at that position you worry that you know it's a self-fulfilling prophecy where investors assume that there's eventually going to be a dilutive equity issuance of some kind so that's why I think this point deserves a lot of consideration for management

I would add that in the products that you mentioned there, one does inform the other. If you're making conduit loans and you think you don't own securities, okay, you can tell yourself that story, but yes, you do. In fact, you own AAAs all the way down to the B piece until you securitize those assets. If you're having trouble selling those AAAs when you do your conduit transaction, you probably shouldn't be buying a lot more on the security side. Usually we get a fair heads up when the markets are softening because we have a securities portfolio that informs us on how aggressive we should or should not be around the conduit business at any given time. So as I said, one, they're really just different versions of the same thing. All of these products, including owning real estate, really just comes down to cash flows associated real or future with real estate. And you ought to be able to figure out each of them if you know what you're doing. I will say that one of the problems we ran into that I kicked myself for not fully appreciating is that pandemic started in the last two weeks at the end of a quarter. And while I really do think that our corporate bond exposure actually hedges our business, because for the very same reason that our stock fell, because there was a perception that we might have a leverage problem in a two-year AAA portfolio, our corporate bonds also fell. And that is the first time in my life I have not been able to take advantage of that situation. And the reason why is because we were in a closed window period for our securities. This is what happens with a public company. So those are, and as soon as that window opened, we stepped right in there and began to buy those bonds. And I think if we had been able, if that situation had taken place in the middle of February instead of the middle of March, I think the outcome would have been much different. Because we would have been able to step in, and I think that's a confidence builder for people. I think when people look at our stock now, people sometimes, I think we trade to a dividend. If you kind of look at us versus the peers, we're all kind of in the same neighborhood. But I don't think – the smartest guys don't buy our stock because of our dividend. I think most people buy it because they think the stock could double. And I know I'm a believer in that. I don't think it would be very hard at all to do that. I don't think adding earnings here is difficult at all. But one of the things you have to remember in a low interest rate environment and a mortgage rate, if you want to add earnings, you have to add leverage. And if you add leverage in this market, given what's going on in the banking sector with a flat yield curve, you better be very careful. Because they may decide they don't want to be in that business for much longer. And I don't believe having a billion dollars worth of repo financing on AAA securities that can be sold in five minutes is better than having another billion dollars of repo financing on bridge loans where tenants are closed by order of the government. So, you know, the home loan business is not very liquid. And if you have to sell loans, you have to be a little bit careful. Right now, I think the apartment markets have largely been backstopped by the government. The rest of the markets have not been. These eviction moratoriums that are out there are accidents waiting to happen. You know, the government at large takes people who are voting and say, you don't have to pay your rent this month. But they're not going to be there when they owe six months worth of rent. And they haven't told the landlord that. that he doesn't have to make his payment to his lender like me or into a securitization. And I think the thing that's missed sometimes is the people that own these apartment buildings, they're not the Blackstones and the equity residentials of the world. These guys are guys that own an eight-unit apartment building in Queens. And when you tell a tenant he doesn't have to make the payment and he has to pay his property taxes and his electric bills and his mortgage bills, you've really kind of missed the point there. And I could go on a rant here about the government and how it's letting down. And the very people that are talking about equity and equality are causing it. And they really do need to get to fixing that because you're going to have people with their couches on the street here pretty soon.

And sorry, just a quick credit question. I don't know if you, Pamela, or Rob want to answer this, but What's the total percentage of loans on non-accrual, either as a percentage of the loan portfolio?

So we had our pre-COVID, we really only had one loan default. Mark can give you the stats, but we had one loan default post-COVID that you may have not been on the call at the time, but Rob went through earlier. It's a hotel in Miami, a $45 million hotel. That's really the only post-COVID loan default. The other ones, I mean, we were talking about the structural issue. We had the two assets in Austin, Texas that defaulted pre-COVID. That's really partnership-related issues versus asset-level issues.

And the total is the total number. Go ahead. Sorry. Three percent of assets. Okay.

That's better than most of the peers and also better than Wells Fargo and some of the major companies. banks that have reported. So kudos to you guys, and you're still getting loan repayments, which is also a positive.

Thank you. One point on that, Jay, just when you think about us generally in terms of both loan payments and those kind of issues, on default, we have our weighted average duration on our balance sheet loan is 1.1 years. it's really hard to hide anything. You know, if you can't really kick the can down the road with a final maturity date like that. So I think what you see true to ladder is, you know, we take the same approach as everybody, but our loans are coming due fast and furious with the 1.1 weighted average duration.

Jade, just to follow up on that, and, you know, you're looking at us with a large cash balance. We built up that large cash balance in part because of what Pamela just said, we have loans that are maturing all the time. We're doing relatively, our loans at roughly two years on average, but when we originate them, it's a fraction of what it is with the peers in our space, we're more like in the four to five year range. We have a lot more loans that are maturing in a limited period of time. The second thing is, is the future funding obligations. Brian mentioned that what we do, we were able to shut off the flow of cash out of our company. Our competitors, if you look at our competitive peers, look at the magnitude of future funding obligations they have, and you can do it on any scale you want and any percentage you want, what you will see is that we have numerous competitors future funding obligations compared to that. That means we have a lot of cash going out the door. So all this, combined with the fact that we have securities that amortize, leads you to a point where you say you're going to see a lot of cash flowing into a lot of capital at any given point in time.

Great. Well, I appreciate all that, and thanks so much for taking the questions.

Thanks, Jade.

This concludes the question and answer session. I'll now turn the conference back over to Brian Harris for closing remarks.

I just want to say thanks, everybody. You know, we're looking forward to a more productive year next year with, you know, hopefully we'll have managed our way out of this COVID situation. I think we will. I feel very good about where we are relative to where we were six months ago. So I look forward to it. We won't speak to you again until late February, but there is an odd chance that we'll do an early release of earnings if the timing looks right. Okay, so thanks very much. Talk to you soon.

This concludes today's conference call. Thank you for participating, and have a pleasant day.